<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1996 Commission File Number 33-86838-01
AFTERMARKET TECHNOLOGY CORP.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 95-4486486
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Registrant's telephone number, including area code: (206) 838-0346
NO CHANGE
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
The number of shares outstanding of each of the issuer's classes of common
stock, as of June 30, 1996.
Common Stock 1,000 Shares
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AFTERMARKET TECHNOLOGY CORP.
FORM 10-Q
TABLE OF CONTENTS
Page Number
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PART I Financial Information
Item 1 Financial Statements:
Consolidated Balance Sheets as of June 30, 1996
(unaudited) and December 31, 1995 .................... 3
Consolidated Statements of Income (unaudited)
for the Three and Six Months Ended June 30,
1996 and 1995 ........................................ 4
Consolidated Statements of Cash Flows (unaudited) for
the Six Months Ended June 30, 1996 and 1995 .......... 5
Notes to Consolidated Financial Statements ........... 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations .................. 8
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K ..................... 13
Signatures ........................................... 14
Note: Items 1 - 5 of Part II are omitted because they are not
applicable.
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AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 9,905,284 $ 8,749,805
Accounts receivable, net 36,084,458 32,965,874
Inventories 50,577,197 43,064,712
Prepaid and other assets 2,475,438 2,032,671
Deferred tax assets 2,618,490 2,267,000
------------- -------------
Total current assets 101,660,867 89,080,062
Equipment and leasehold improvements:
Machinery and equipment 9,453,753 7,187,840
Autos and trucks 1,703,540 1,503,760
Furniture and fixtures 1,128,105 858,070
Leasehold improvements 3,694,378 2,860,711
------------- -------------
15,979,776 12,410,381
Less accumulated depreciation and amortization (2,428,761) (1,625,917)
------------- -------------
13,551,015 10,784,464
Debt issuance costs, net 6,747,468 7,162,690
Cost in excess of net assets acquired, net 141,154,081 140,652,620
Other assets 392,286 245,897
------------- -------------
Total assets $ 263,505,717 $ 247,925,733
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 18,431,989 $ 12,851,575
Accrued payroll and related costs 3,038,677 2,094,237
Accrued interest payable 8,164,383 8,097,647
Other accrued expenses 3,220,759 3,170,162
Bank lines of credit 2,188,851 811,067
Income taxes payable 453,968 1,912,116
Due to related parties 100,000 100,000
Due to former stockholders 36,734 36,734
------------- -------------
Total current liabilities 35,635,361 29,073,538
Series B and D Senior Subordinated Notes 162,113,559 162,245,762
Deferred tax liabilities 4,336,207 3,478,000
Stockholder's equity:
Common stock, $.01 par value; 5,000,000 shares
authorized; 1,000 shares issued and outstanding 10 10
Additional paid-in capital 39,999,990 39,999,990
Retained earnings 21,393,380 13,103,433
Cumulative translation adjustment 27,210 25,000
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61,420,590 53,128,433
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Total liabilities and stockholder's equity $ 263,505,717 $ 247,925,733
------------- -------------
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</TABLE>
See accompanying notes.
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AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 66,872,798 $ 45,094,197 $ 131,019,316 $ 85,731,868
Cost of sales (41,809,554) (27,027,798) (80,168,576) (51,997,748)
------------- ------------- ------------- -------------
Gross profit 25,063,244 18,066,399 50,850,740 33,734,120
Selling, general and
administration expense (12,663,140) (9,115,350) (25,125,707) (17,149,056)
Amortization of intangible assets (933,126) (774,618) (1,848,781) (1,494,760)
------------- ------------- ------------- -------------
Income from operations 11,466,978 8,176,431 23,876,252 15,090,304
Interest and other income 175,371 287,490 397,451 486,446
Interest expense (5,113,743) (4,192,038) (10,177,918) (7,958,602)
------------- ------------- ------------- -------------
Income before income taxes 6,528,606 4,271,883 14,095,785 7,618,148
Provision for income taxes (2,637,422) (1,347,632) (5,805,838) (2,740,632)
------------- ------------- ------------- -------------
Net income $ 3,891,184 $ 2,924,251 $ 8,289,947 $ 4,877,516
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See accompanying notes.
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<PAGE>
AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 8,289,947 $ 4,877,516
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,738,773 2,050,847
Amortization of debt issuance costs 415,222 310,312
Increase in allowance for
losses on accounts receivable 127,080 385,861
Loss on sale of equipment 27,206 -
Increase in net deferred tax liabilities 484,717 1,095,541
Changes in operating assets and liabilities:
Accounts receivable (2,315,982) (1,750,184)
Inventories (6,451,298) (4,701,089)
Prepaid and other assets (570,628) (1,318,421)
Accounts payable and accrued expenses 4,650,798 2,268,989
------------ ------------
Net cash provided by operating activities 7,395,835 3,219,372
INVESTING ACTIVITIES:
Purchases of equipment (3,540,856) (1,950,783)
Acquisition of companies, net of cash acquired (4,106,970) (30,903,737)
Proceeds from sale of fixed assets 29,686 1,861
------------ ------------
Net cash used in investing activities (7,618,140) (32,852,659)
FINANCING ACTIVITIES:
Issuance of senior subordinated notes - 42,400,000
Borrowings (payments) on revolving bank lines, net 1,377,784 (1,325,567)
Payment of debt issuance costs - (1,788,481)
Payments on amounts due former stockholders - (4,083,834)
------------ ------------
Net cash provided by financing activities 1,377,784 35,202,118
------------ ------------
Increase in cash and cash equivalents 1,155,479 5,568,831
Cash and cash equivalents at beginning of period 8,749,805 9,421,577
------------ ------------
Cash and cash equivalents at end of period $ 9,905,284 $ 14,990,408
------------ ------------
------------ ------------
Cash paid during the period for:
Interest $ 9,675,975 $ 7,233,720
Income taxes $ 6,305,846 $ 1,823,627
</TABLE>
See accompanying notes.
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<PAGE>
AFTERMARKET TECHNOLOGY CORP.
Notes to Consolidated Financial Statements
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Aftermarket
Technology Corp. (the "Company") as of June 30, 1996 and for the three and six
months ended June 30, 1996 and 1995 have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulations S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six month period ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
NOTE 2: INVENTORIES
Inventories are stated at the lower of cost (first in, first out method) or
market:
June 30, 1996 December 31, 1995
------------- -----------------
Raw materials........................$ 25,764,590 $ 19,015,530
Work-in-process...................... 1,086,027 1,394,479
Finished goods....................... 23,726,580 22,654,703
---------- ----------
$ 50,577,197 $ 43,064,712
------------ ------------
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The increase in raw materials is primarily a result of inventory build-ups
required to meet increased production levels of remanufactured transmissions and
engines associated with additional product applications, new and expanded
production facilities, and seasonal demand fluctuations.
NOTE 3: ACQUISITIONS
The Company acquired Component Remanufacturing Specialists, Inc. ("CRS"), Mascot
Truck Parts Inc. ("Mascot") and King-O-Matic Industries Ltd. ("King-O-Matic") on
June 1, June 9, and September 12 of 1995, respectively, for a total purchase
price of approximately $42.8 million. The Company issued $40 million of
principal amount of
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12% Senior Subordinated Notes due 2004 concurrent with the acquisition of CRS,
the proceeds of which financed the acquisitions. In addition, on April 2, 1996,
the Company acquired Tranzparts, Inc. ("Tranzparts") for approximately $4.1
million in cash.
The acquisitions have been accounted for as purchases. Accordingly, the
allocation of the cost of the acquired assets and liabilities has been made on
the basis of the estimated fair value.
The consolidated financial statements include the operating results of each
business from the date of acquisition. The following pro forma information
gives effect to the 1995 acquisitions and the acquisition of Tranzparts as if
such acquisitions occurred on January 1, 1995. The pro forma information
includes adjustments for interest expense that would have been incurred to
finance the acquisitions, additional depreciation based on the fair market
values of the property, plant and equipment acquired, and amortization of
intangibles arising from the transactions. The pro forma information is not
necessarily indicative of the results of operations as they would have been had
the transactions been effected on January 1, 1995.
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- ------------------------
1996 1995 1996 1995
---- ---- ---- ----
(in thousands) (in thousands)
Net sales......$ 66,873 $ 54,581 $ 133,058 $ 107,351
Net income.....$ 3,893 $ 2,618 $ 8,365 $ 5,100
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<PAGE>
AFTERMARKET TECHNOLOGY CORP.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED JUNE 30, 1996 COMPARED TO
THE THREE MONTH PERIOD ENDED JUNE 30, 1995.
Net Sales
Total net sales increased $21.8 million or 48.3%, from $45.1 million for the
three month period ended June 30, 1995 to $66.9 million for the three month
period ended June 30, 1996. Of this increase, $10.0 million was due to internal
growth and $11.8 million was due to the incremental net sales generated by the
companies acquired in 1995 and 1996, including CRS, Mascot, King-O-Matic and
Tranzparts, which were acquired on June 1, June 9, and September 12 of 1995, and
April 2, 1996, respectively.
The internal growth was generated primarily from increased sales volumes with
existing Original Equipment Manufacturer ("OEM") customers, the incremental
sales from five new distribution centers opened during the second half of 1995,
increased sales through existing distribution centers and increased sales
volumes with existing retail customers.
Net sales to the Mopar Parts Division of Chrysler Corporation ("Chrysler") for
the three month period ended June 30, 1996 represented 36.8% of the Company's
total net sales for the period as compared with 36.1% for the three month period
ended June 30, 1995.
Gross Profit
Gross profit as a percentage of net sales decreased from 40.1% for the three
month period ended June 30, 1995 to 37.5% for the three month period ended
June 30, 1996. The decrease in margin was related primarily to the start-up
activities of the Company's new plant in Joplin, Missouri and the expansion of
capacity at the Company's plant in Springfield, Missouri needed to support
future sales growth to retail and OEM customers. To a lesser degree, gross
profit was also adversely impacted by certain non-recurring unfavorable cost
variances relating to the reorganization of the Company's largest independent
aftermarket production facility in Rancho Cucamonga, California.
Selling, General and Administrative Expenses
As a result of an increase in revenues, selling, general and administrative
expenses ("SG&A") decreased as a percentage of net sales from 20.2% for the
three month period ended June 30, 1995 to 18.9% for the three month period ended
June 30, 1996. However, SG&A increased in absolute dollars from $9.1 million
for the three month period ended June 30, 1995 to $12.7 million for the three
month period ended June 30, 1996, representing an increase of $3.6 million or
39.6%. The increase in SG&A was due largely
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to the ongoing incremental SG&A expenses of CRS, Mascot, King-O-Matic and
Tranzparts. Other significant factors contributing to the increase in SG&A
include the ongoing incremental expenses associated with the five new
distribution centers opened during the second half of 1995, and certain initial
start-up expenses incurred in connection with the Company's new plant in Joplin,
Missouri and its new rebuild kit packaging and distribution facility in Memphis,
Tennessee.
Amortization of Intangible Assets
Amortization of intangible assets increased $0.2 million for the three month
period ended June 30, 1996 as compared to the three month period ended June 30,
1995 reflecting the increase in intangible assets that occurred as a result of
the acquisitions of CRS, Mascot, King-O-Matic and Tranzparts.
Income from Operations
Principally as a result of the factors described above, income from operations
increased from $8.2 million for the three month period ended June 30, 1995 to
$11.5 million for the three month period ended June 30, 1996.
Interest Expense
Interest expense increased $0.9 million from $4.2 million for the three month
period ended June 30, 1995 to $5.1 million for the three month period ended June
30, 1996. The increase in interest expense was due to the interest on the
Series D Senior Subordinated Notes (the "Series D Notes") which were used to
finance the acquisitions of CRS, Mascot and King-O-Matic, and the related
amortization of debt issuance costs. The Series D Notes were issued on June 1,
1995 and therefore were only outstanding for one month during the three months
ended June 30, 1995.
RESULTS OF OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996 COMPARED TO
THE SIX MONTH PERIOD ENDED JUNE 30, 1995.
Net Sales
Total net sales increased $45.3 million or 52.9%, from $85.7 million for the six
month period ended June 30, 1995 to $131.0 million for the six month period
ended June 30, 1996. Of this increase, $21.2 million was due to internal growth
and $24.1 million was due to the incremental net sales generated by the
companies acquired in 1995 and 1996, including CRS, Mascot, King-O-Matic and
Tranzparts which were acquired on June 1, June 9, September 12 of 1995, and
April 2, 1996, respectively.
The internal growth was generated primarily from increased sales volumes with
existing OEM customers, the incremental sales from five new distribution centers
opened during the second half of 1995, increased sales volumes through existing
distribution centers and increased sales volumes with existing retail customers.
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<PAGE>
Net sales to Chrysler for the six month period ended June 30, 1996 represented
36.9% of the Company's total net sales for the period as compared with 38.4% for
the six month period ended June 30, 1995.
Gross Profit
Gross profit as a percentage of net sales decreased from 39.3% for the six month
period ended June 30, 1995 to 38.8% for the six month period ended June 30,
1996. The decrease in margin was related primarily to the start-up activities of
the Company's new plant in Joplin, Missouri and the expansion of capacity at
the Company's plant in Springfield, Missouri needed to support future sales
growth to retail and OEM customers. To a lesser degree, gross profit was also
adversely impacted by certain unfavorable cost variances relating to the
relocation and reorganization of its largest independent aftermarket production
facility from Azusa, California to Rancho Cucamonga, California.
Selling, General and Administrative Expenses
As a result of an increase in revenues, SG&A decreased as a percentage of net
sales from 20.0% for the six month period ended June 30, 1995 to 19.2% for the
six month period ended June 30, 1996. However, SG&A increased in absolute
dollars from $17.1 million for the six month period ended June 30, 1995 to $25.1
million for the six month period ended June 30, 1996, representing an increase
of $8.0 million or 46.8%. The increase in SG&A was due largely to the ongoing
incremental SG&A expenses of CRS, Mascot, King-O-Matic and Tranzparts. Other
significant factors contributing to the increase in SG&A include the ongoing
incremental expenses associated with the five new distribution centers opened
during the second half of 1995, and certain initial start-up expenses incurred
in connection with the Company's new plant in Joplin, Missouri and its new
rebuild kit packaging and distribution facility in Memphis, Tennessee.
Amortization of Intangible Assets
Amortization of intangible assets increased $0.3 million for the six month
period ended June 30, 1996 as compared to the six month period ended June 30,
1995 reflecting the increase in intangible assets that occurred as a result of
the acquisitions of CRS, Mascot, King-O-Matic and Tranzparts.
Income from Operations
Principally as a result of the factors described above, income from operations
increased from $15.1 million for the six month period ended June 30, 1995 to
$23.9 million for the six month period ended June 30, 1996.
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Interest Expense
Interest expense increased $2.2 million from $8.0 million for the six month
period ended June 30, 1995 to $10.2 million for the six month period ended June
30, 1996. The increase in interest expense was due to the interest on the
Series D Notes which were used to finance the acquisitions of CRS, Mascot and
King-O-Matic, and the related amortization of debt issuance costs. The Series D
Notes were issued on June 1, 1995 and therefore were only outstanding for one
month during the six month period ended June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company had total cash and cash equivalents on hand of $9.9 million at June
30, 1996, representing an increase in net cash of $1.2 million for the six
months then ended. Net cash provided by operating activities was $7.4 million
for the six months ended June 30, 1996. Net cash used in investing activities
was $7.6 million for the six months ended June 30, 1996, including $4.1 million
for the acquisition of Tranzparts and $3.5 million in capital expenditures
largely for transmission and engine remanufacturing equipment and other
improvements related to the Company's new plant in Joplin, Missouri. Net cash
provided by financing activities was $1.4 million, representing net borrowings
on bank lines of credit.
As of June 30, 1996, the Company had approximately $26.3 million available under
its $30.0 million revolving credit facility.
The Company has budgeted a total of $9.8 million for capital expenditures for
all of 1996, including $5.2 million for the purchase of additional transmission
and engine remanufacturing equipment to provide an increase in production
capacity.
The Company believes that cash on hand, cash flow from operations and
existing borrowing capacity will be sufficient to fund its ongoing operations
and its budgeted capital expenditures described in the preceding paragraph.
In pursuing future acquisitions, the Company expects to have to consider the
effect any such acquisition costs may have on its liquidity. In order to
consummate such acquisitions, the Company may accordingly need to seek to
raise additional capital through additional borrowings or equity financings.
The information in this paragraph is forward-looking and involves risks and
uncertainties that could significantly impact the Company's expected
liquidity requirements in the short and long term. While it is impossible to
itemize the many factors and specific events that could affect the Company's
outlook for its liquidity requirements, such factors would include the
possible reduction in deliveries to one or more significant customers for any
reason and the possible effect of assimilating acquisitions into the
Company's existing operations and the expansion of those operations.
PLANNED OFFERING
On June 24, 1996, the Company filed a Form S-1 Registration Statement with the
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as
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amended, to register the sale by the Company of shares of its Common Stock (the
"Offering"). Completion of the Offering is subject to a number of factors,
including SEC approval of the Registration Statement and negotiation and
execution of an Underwriting Agreement between the Company and the several
underwriters who will participate in the Offering.
Simultaneous with the consummation of the Offering, the Company will be merged
with Aftermarket Technology Holdings Corporation ("Holdings"), the sole
stockholder of the Company. Upon the effectiveness of such merger, the
outstanding shares of Holdings Common Stock will be converted into shares of the
Company's Common Stock, and the outstanding shares of Holdings Preferred Stock
will be converted into the right to receive cash equal to its stated value plus
accrued and unpaid dividends to the effective date of the reorganization (the
"Preferred Stock Reorganization Consideration"). The total stated value of the
Holdings Preferred Stock is $20.0 million and the accrued and unpaid dividends
at June 30, 1996 totaled approximately $4.0 million.
The net proceeds from the Offering will be used by the Company to redeem $40
million in aggregate principal amount of its Series B and D Senior Subordinated
Notes (the "Senior Notes") at a redemption price of 112% plus accrued interest
thereon, and to pay the aggregate Preferred Stock Reorganization Consideration.
Any remaining net proceeds will be used by the Company for general corporate
purposes. If the net proceeds from the Offering are not sufficient to fund the
intended redemption of the Senior Notes and payment of the aggregate Preferred
Stock Redemption Consideration, the Company expects that the balance of the
Preferred Stock Redemption Consideration would be paid from cash on hand. No
assurance can be given that the Company will successfully complete the Offering.
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AFTERMARKET TECHNOLOGY CORP.
Part II. Other Information
Items 1 - 5 are not applicable.
Item 6 Exhibits and Reports on Form 8-K
No exhibits or reports were filed on Form 8-K during the quarter.
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AFTERMARKET TECHNOLOGY CORP.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AFTERMARKET TECHNOLOGY CORP.
/s/ John C. Kent
----------------------------
John C. Kent
CHIEF FINANCIAL OFFICER
* John C. Kent is signing in the dual capacities as i) the principal financial
officer, and ii) a duly authorized officer of the company.
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<TABLE> <S> <C>
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 9905284
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<RECEIVABLES> 38687930
<ALLOWANCES> 2603472
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<CURRENT-ASSETS> 101660867
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0
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